When the system delays the policy: the hidden cost of legacy technology in insurance

In the insurance market, some of the biggest obstacles to innovation are not always visible to the customer. Behind a delayed quote, a process that requires manual intervention, or the difficulty of launching a new product, there may be a technology architecture built over the years that can no longer keep pace with the speed demanded by the business.

This scenario becomes even more relevant with the advancement of artificial intelligence. 74% of insurers point to predictive analytics as a priority investment area for underwriting and claims, while the sector expects to achieve average savings of over 20% in the coming years with productivity gains related to AI.

But capturing this potential requires a technological foundation capable of keeping up. Transforming operations with technology and data is among the sector’s priorities, highlighting automation and digitization as necessary elements to create more agile operations, reduce costs, and improve results throughout the insurance chain.

In practice, legacy systems can become a cost that goes far beyond software maintenance. It manifests in the time to bring products to market, the ability to integrate data, dependence on manual processes, customer experience, and even the speed to adopt new technologies.

Objective has experienced this challenge by supporting the modernization of the core system of a global leading insurer. The accumulation of technological layers already compromised the efficiency and responsiveness of the business, in addition to generating maintenance difficulties, scalability limitations, lack of clear documentation, and greater operational risk.

The modernization was carried out incrementally, using AI from the analysis of the legacy code to documentation, architecture, development, and testing. In one of the areas, the estimated effort fell by 62.5%, from 80 to 30 hours, along with gains of 53.3% and 46.7% in other functionalities.

The point, therefore, is not simply to replace technology because it has aged. It is to understand how much the current structure is costing the business — and how much it may be preventing the insurer from evolving.

What is legacy technology in insurance?

Legacy technology is not just an old system. The term refers to applications, architectures, and infrastructures that remain essential for operations but have limitations in meeting current business needs.

In insurers, this may involve core systems responsible for critical processes such as policy issuance, claims management, billing, underwriting, and product administration. Many of these platforms have been built over the years and undergone successive adaptations to meet new demands.

The problem arises when this structure begins to hinder integrations, requires high maintenance effort, or makes any change slower and more complex.

Thus, the age of technology alone does not determine whether it is a problematic legacy. The main indicator is how much it limits the insurer’s ability to evolve processes, products, and experiences at the speed the market demands.

What are the hidden costs of legacy systems for insurers?

The cost of a legacy system goes beyond licenses, infrastructure, and maintenance. Often, the most relevant impact is in the additional effort needed to keep the business running and evolving.

Changes that should be simple may require complex development, extensive testing, and knowledge from professionals skilled in obsolete technologies. At the same time, difficult integrations can lead to the creation of parallel processes, manual controls, and rework.

In practice, this cost appears at different points in the operation: longer time to launch or alter products, reliance on manual processes, difficulty in integrating partners and channels, increased maintenance effort, and reduced ability to respond quickly to business needs.

“The cost of legacy is not just in the IT budget. It is reflected in the time the company takes to change a product, integrate a new solution, or respond to a business need. When technology reduces this response capacity, the impact becomes strategic.” –  Leandro Saran, COO of Objective 

In insurance, the effect can reach the customer directly. When technology increases the number of steps required to quote, issue, or change a policy, for instance, the cost of legacy becomes not just technological but begins to affect efficiency, experience, and competitiveness.

It is this less visible cost that makes modernization a business discussion — and not just a decision for the IT department.

Does legacy technology limit the use of data and AI in insurers?

Yes. One of the main obstacles to scaling data initiatives and AI lies in the ability to access, integrate, and provide information with quality and speed — something that legacy architectures have not always been designed to do.

In insurers, information about customers, policies, claims, payments, and risks may be distributed across different systems, formats, and databases. When these environments have low interoperability, creating an integrated view requires more effort and can compromise the quality of the data used by the models.

The impact is also evident in integration. Modern AI applications need to connect to existing processes to consume data and return analyses or recommendations to the operation. Rigid architectures with limited APIs can make this integration slower, more expensive, and more complex.

This does not mean that an insurer needs to replace all legacy systems before advancing with AI. In many cases, the strategy may involve decoupling functionalities, creating integration layers, modernizing priority components, and organizing the data architecture incrementally.

Thus, modernization and AI do not need to be isolated projects. The evolution of the technological architecture can be directed precisely by use cases of data and AI that have the greatest potential to generate value for the business.

Does maintaining legacy systems increase security and compliance risks?

It can increase. Legacy systems that no longer receive adequate updates or rely on discontinued technologies can heighten exposure to vulnerabilities and complicate the adoption of modern protection mechanisms.

The challenge also lies in visibility and traceability. Architectures built over many years may involve different systems, integrations, and access rules, making it more complex to identify who accessed specific information, how the data was used, and where it is stored.

For insurers, this point is especially relevant due to the amount of personal, financial, and risk evaluation-related data processed daily. Security, privacy, and compliance must accompany the entire life cycle of this information.

Moreover, the greater the reliance on old components and concentrated knowledge among a few professionals, the higher the operational risk associated with failures, unavailability, or the need for emergency changes.

Thus, modernization means not only gaining speed. It is also an opportunity to review architecture, access, integrations, traceability, and controls, incorporating security and compliance into the technological design from the outset.

Modernize or replace: what is the best strategy for legacy systems in insurance?

There is no one-size-fits-all answer. Completely replacing a core system may make sense in certain scenarios, but it also involves costs, migration risks, and impacts on critical processes. In other cases, progressively modernizing the architecture may deliver quicker results and reduce risks.

The decision should consider factors such as the criticality of the system, maintenance costs, existing dependencies, integration capabilities, availability of technical knowledge, and the impact of current limitations on the business.

One possible strategy is incremental modernization: functionalities are gradually decoupled, critical components are restructured, and new architectures coexist with the legacy during the transition. This allows for the evolution of technology without necessarily disrupting essential operations.

This approach was adopted by Objective in a project for a global leading insurer, whose core system had layers of technology that hindered maintenance and scalability. Instead of an abrupt replacement, modernization took place incrementally, with the reconstruction of functionalities on a modular architecture and the use of AI in stages such as code analysis, documentation, development, and testing.

In one of the modernized functionalities, the estimated effort dropped from 80 to 30 hours, a reduction of 62.5%. Other areas recorded reductions of 53.3% and 46.7%, showing how architectural modernization and new development tools can go hand in hand.

Discover the complete case of system modernization with AI by Objective

More than just choosing between maintaining or replacing, the question is to define which strategy allows reducing dependence on the legacy without creating an even greater risk for operations.

Where to start the technological modernization journey in insurance?

Modernizing does not mean starting with the oldest system or immediately replacing the core of operations. The first step is to understand where the current technology is limiting the business and which changes can generate the greatest impact.

This diagnosis should consider architecture, integrations, dependencies, code and data quality, operational risks, and especially the affected business processes. From this perspective, it is possible to establish priorities and build a roadmap that balances value, complexity, and risk.

Modernization can also happen progressively. Components can be decoupled, integrations modernized, and functionalities rebuilt in stages, allowing the company to advance without compromising the continuity of critical operations.

Thus, more than defining a new architecture, the challenge is to build a strategy adapted to the reality of each insurer. There is no single path to modernize legacy systems: the starting point depends on the technological environment, business objectives, and the maturity level of each organization.

Objective operates precisely in this context, combining business knowledge, architecture, software engineering, data, and AI to build modernization journeys tailored to different scenarios — from the incremental evolution of existing systems to the creation of new solutions.

If current technology is limiting the evolution of your operation, talk to our specialists. We can understand your scenario, identify critical points, and design a personalized modernization strategy for your business’s needs and objectives.

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